Are investors choosing Journal Register over Philadelphia's Inquirer, Daily News?

I was as puzzled as the next guy when I learned Sunday that the Philadelphia Media Network, publisher of the city's two dailies, is on the auction block.

This comes a mere 17 months since a group of private equity firms led by Alden Global Capital acquired the company and installed Greg Osberg, a former Newsweek publisher, as CEO.

Since Alden and its reclusive owner Randall Smith don't speak to the media, I can't say definitively that another sale is in the works. Remember that two years ago, the New York Times Co. entertained bids for the Boston Globe but ended up turning them all down.

Still, I think, on reflection, that my old friends at Little Orphan Inky and its tabloid sister, the Daily News, are well on the way to having their fifth owner in six years. That includes Knight Ridder, McClatchy, Brian Tierney's locally-led Philadelphia Media Holdings, Alden's Philadelphia Media Network and whoever the next buyer might be.

Osberg issued a reassuring note to employees Monday saying Alden had every right to sell its stake, but not the entire company. That is accurate as far as it goes.

But Alden is the lead manager of the group with a 30 percent stake and one of its bankers, Heath Freeman, is the head of the board of directors. If a reasonable offer materializes, it seems likely others in the ownership group will agree to a sale.

Why might Alden sell so soon?

As the Post reported, if Alden is souring on newspaper investments generally, that is big news. Alden owns Journal Register outright and is the lead owner of Denver-based MediaNews (now jointly managed with JR) and Freedom Communications of Orange County, Calif. Alden also has had a large investment in Gannett and smaller stakes in four other public newspaper companies.

I think it more likely, however, that Alden is specifically dissatisfied with progress to date at the Philadelphia papers. Big city markets, especially at papers with a strong union presence, are the most financially challenging places in the industry to operate profitably.

Osberg has been proactive in installing his own management and making a series of forays into digital. However, the company's decision to offer an Android-based tablet free to those who would accept a full-year digital subscription, has been viewed as a flawed approach that has yet to take off. (The New York Times and Barnes and Noble announced a similar offer this week, but on the popular Nook and Nook Color).

Philadelphia Media Network does not release revenue or profit figures, but ad sales could well be worse than the 7.5 percent decline the industry posted for 2011.

Who might buy the Philly papers?

A tougher question than why Alden might want to sell is who would want to buy. If a specialist in the industry like Alden is not making the Philly venture work, why would another private equity group think it can?

Former CEO Brain Tierney, who had assembled a group bidding against Alden in 2010, told me by phone that he has moved on to other business ventures and has no interest in regaining control. He added, though, that since Sunday's news broke, he has heard from several wealthy Philadelphians who indicated they might participate in a local ownership group and make a bid.

The Post indicated that the Alden group, having paid $139 million, was hoping for a sale price of $100 million. That would be a loss, but the group has realized about $20 million on the sale last July of the newspapers' white tower headquarters in downtown Philadelphia.

What role does Journal Register's success play in a sale?

There is one more additional curiosity in the possible sale. Journal Register is based in the Philadelphia suburb of Yardley and, according to the company website, it operates six daily and 40 weekly newspapers in the area.

Along with Gannett's Courier Post in Camden and other dailies, this group has provided the Inquirer with especially challenging competition, dating back to the days of Knight Ridder ownership.

At least in theory, Alden might by now have found a way to manage the Philadelphia papers and its suburban holdings in tandem.  Conversely, having looked closely at financial and other competitive information for both groups, Alden may have concluded that the suburban cluster has the better business prospects.

Rick Edmonds was a reporter and editor at the Inquirer from 1977 to early 1982.


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